Ford profit tops Wall Street forecasts

The No. 2 U.S. automaker lowered the top end of its range for U.S. auto industry sales for 2010, citing in part a slow but sustainable recovery in the U.S. economy.

We delivered a very strong second quarter and first half of 2010 and are ahead of where we thought we would be despite the still-challenging business conditions, Chief Executive Alan Mulally said in a statement.

Ford trimmed automotive debt by $7 billion in the second quarter and it expects to further reduce its debt. It ended the quarter with $27.3 billion of automotive debt.

Ford, the only large U.S. automaker to avoid bankruptcy in 2009, borrowed more than $23 billion in 2006 to fund its turnaround, leaving it with a heavier debt load than rivals General Motors Co and Chrysler.

Ford's balance sheet has been the major investor concern for an automaker that has gained market share and largely eliminated the gap in quality and vehicle resale values against competitors led by Toyota Motor Corp.

Bernie McGinn, president of McGinn Investment Management who holds Ford shares, expects the automaker to sell more stock to shore up its cash position.

That would initially be seen as negative but it would be done to repair the balance sheet, said McGinn, who said he believes Ford remains in the early stages of its recovery. Who would have thought even a year ago that U.S. automakers would be cash generators?

Analysts have said with IPOs expected from GM, Chrysler and Delphi in the coming months, and a possible secondary offering from Ford, there is a risk of overloading investor demand despite the signs of a slow recovery in auto demand.

'STILL A BIT SKITTISH'

Ford cut the top of its U.S. auto industry sales forecast for 2010. It expects industrywide sales of 11.5 million to 12 million vehicles, including medium and heavy trucks, down from a prior forecast of 11.5 million to 12.5 million.

The automaker expects to increase its U.S. market share in 2010.

I'd say the consumer is still a little bit skittish, but I'd say July is off to a better start, Chief Financial Officer Lewis Booth told reporters.

Second-quarter net profit rose to $2.6 billion from $2.26 billion a year earlier. Earnings per share fell to 61 cents from 69 cents due to an increase in outstanding shares. Revenue rose $4.5 billion to $31.3 billion.

Earnings from operations, excluding one-time items, were 68 cents a share. On that basis, analysts on average expected 40 cents, according to Thomson Reuters I/B/E/S.

Ford has posted four consecutive quarters of operating profits, despite a severe downturn that pushed U.S. auto industry sales to their lowest levels since the early 1980s.

The automaker reported operating profits on autos in every region in the second quarter, including $1.9 billion in North America. Ford Motor Credit posted an $888 million pre-tax operating profit.

The automaker plans to discontinue its Mercury brand and expects to complete the sale of Volvo to China's Geely in the third quarter. It intends to focus on its mass market Ford and luxury Lincoln brands.

Ford recorded $229 million of personnel and dealer-related charges in the second quarter, primarily for the discontinuation of the Mercury brand.

Automotive operating cash flow was $2.6 billion in the second quarter, and Ford ended the quarter with gross cash in the automotive business of $21.9 billion after executing debt-reduction plans.

Ford expects to move from a net automotive debt position to a net cash position by the end of 2011, eliminating the $5.4-billion deficit between cash and debt.

Ford shares were up 40 cents, or 3 percent, at $12.50.

(Reporting by David Bailey; Additional reporting by Bernie Woodall; Editing by Derek Caney and John Wallace)